Bush to address nation tonight as opposition to bailout plan builds

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Critics deride the plan as Main Street bailing out Wall Street. Proponents speak from an entirely different perspective.

At the same time, Bernanke, even more than Paulson, warned lawmakers against imposing what he called “punitive” measures that could diminish the willingness of banks and investment companies to participate in the program. And departing from his prepared text, the Fed chairman gave senators a short tutorial that presented the program in a different light from a government bailout.

From his perspective, the real purpose would be to break what Bernanke described as a downward cycle of “fire sale” prices that have infected mortgage-related securities — forcing companies to mark down their value far below what they might be worth if held for maturity.

As a result, the Fed chairman said, private capital is unwilling to come into the market because of this uncertainty, but government purchases and auctions engineered under the Treasury could begin to turn the situation around and shed more light on true values.

“I believe that under the Treasury program, auctions and other mechanisms could be designed that will give the market good information on what the hold for maturity price is for a large class of mortgage related assets,” Bernanke said.

“Banks will have a basis for valuing those assets and not have to use fire sale prices,” he said. “Liquidity would begin to come back to these markets.”

Success, however, depends on drawing the widest possible competition to the bidding process, Bernanke said, and here the chairman and Paulson are both running up against anger among lawmakers and their constituents, who see the $700 billion as a government bailout.

There is strong bipartisan pressure to impose caps on executive pay and severance packages at those firms that benefit from the government purchases. And Sen. Jack Reed (D-R.I.) argued strongly that taxpayers should also be rewarded with some equity interest in the companies so that Treasury might share in future profits.

On the executive compensation issue, Dodd and House Financial Services Committee Chairman Barney Frank (D-Mass.) have said flatly that some caps will have to be in the bill to get political support.

The equity issue is more complicated, but here also both committee chairmen are sympathetic with the arguments by Reed, who has a long friendship with Frank. And to some degree, Bernanke and Paulson have walked into a political box, since they were quite aggressive in demanding an equity interest when the Fed recently intervened to rescue the ailing insurance giant AIG.

Before moving ahead this week, Frank’s committee still has several issues to be decided at a leadership level. Among these is the question of whether the bill will contain language — bitterly opposed by the banking industry — to allow bankruptcy judges to restructure residential mortgages.

But perhaps more important to the large politics of the fight now is some resolution of domestic spending issues still facing Congress before it can go home for the elections. Democrats do not want to help Treasury with its rescue package only to have a veto fight with Bush. And to help spell out the lines, House Appropriations Committee Chairman David Obey (D-Wis.) Tuesday night announced the final details of a long awaited stop-gap spending bill running into next March.

Full-year funding would be provided for the Departments of Defense, Veterans Affairs and Homeland Security. And within foreign aid accounts, the measure adds $365 million in economic recovery funds for Georgia, after its recent conflict with Russia.

The $477.6 billion Pentagon budget reflects a $17.3 billion increase over this fiscal year—a top priority for Republicans. But on the home front, the same measure goes well beyond the administration’s requests, adding tens of billions of dollars in emergency funds to cover recent disasters and increasing funding for education, energy assistance and food programs important to the poor.

The annual appropriations for Pell Grants for low-income college students would be increased by $2.5 billion. Home energy assistance is effectively doubled to $5.1 billion, a $2.5 billion increase, and $1 billion is added for the WIC program targeted to pregnant women and their infants.

The Big Three auto companies would also benefit from $7.5 billion in funds to cover the subsidy costs for $25 billion in loans to the industry—squeezed by the same credit crunch that is driving Paulson’s own plan.

Readers' Comments (558)

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"

Paul is asking for nearly 1 trillion, and he doesn't want anyone reviewing how he spends it?

Is this guy for real? Are we in the USA, or in some banana republic? Where do Paulson and his people get the courage to even contemplate a request of this kind?

Some democrats and republicans are going to turn this into a partisan debate, but politics aside, this request is beyond chutzpah. The sheer audacity of it is unbelievable. Why is congress even considering the bill? The bill is plainly wrong, and should be tossed out, without fanfare or debate.

Wow the Republican circular firing squad has formed with Bush, Paulson and McCain in the middle. Again, the Dems will be left to clean up the mess. Fortunately, Obama and his team have the gravitas to fix this Republican disaster.

Watching the Republicans scrambling to run away from their deregulatory policies that have created this mess is like watching rats jumping off the Titanic as it finally goes under. It's even more amusing than watching - as the election approaches - their complete disavowal of George W Bush after eight years of goose-stepping with him arm-in-arm over many a sheer cliff.

I certainly think there need to be safeguards, the U.S. gets a stake in the businesses for a while, CEO salaries and bonuses for bailed out companies are capped, congress has oversight, etc. But let's face it. If one or the other parties scuttles this and we have a depression, there will be hell to pay. If there is any time in my lifetime when we've needed to work together to accomplish something, that time is now.

WASHINGTON (AP) - The FBI is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration.

Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), Lehman Brothers Holdings Inc. (LEH), and insurer American International Group Inc. (AIG)

Wow the Republican circular firing squad has formed with Bush, Paulson and McCain in the middle. Again, the Dems will be left to clean up the mess. Fortunately, Obama and his team have the gravitas to fix this Republican disaster.

Quit yakking. Go to Barackobama.com and give at least $25

I know I'm missing the valiant efforts of Democrats over the past 10 years to regulate and fix the mortgage industry.

I know they called the sub-prime lending practices reckless and negligent and were shouted down by the evil satan-worshipping Republicans.

I'm just unable to find any citations to legislation, op-eds, speeches, or really anything showing the alleged "gravitas" you cite.

Biden was against bailing out AIG before he was for it, and Obama criticizes both McCain and Biden for that position.

Biden all but comes out and admits that Hillary would have been a better nominee for POTUS and a better choice for Obama's VP.

Gravitas?

You obots are so full of garbage.

I don't care for McCain. But reading Obama supporters' rhetorical diarrhea they giddily splatter all over these threads makes me sick to my stomach.

Economic disaster, carnage in Iraq, joblessness, the rise of Islamic fundamentalism - these are the hopes and dreams of Obots and the Democratic party.

CHECK THIS OUT AMERICA: 300,000 million Americans, right? $700,000 billion........ Which means every American citizen can receive a $1 Million-dollar STIMULOUS PACKAGE bail out ... and there would be billions of dollars left and that WOULD STIMULATE THE ECONMY!

I certainly think there need to be safeguards, the U.S. gets a stake in the businesses for a while, CEO salaries and bonuses for bailed out companies are capped, congress has oversight, etc. But let's face it. If one or the other parties scuttles this and we have a depression, there will be hell to pay. If there is any time in my lifetime when we've needed to work together to accomplish something, that time is now.

yes well, if they've got you to the point that you think the sky will fall if we don't do something NOW, then they are halfway to convincing you that your money needs to be transferred to private enterprises that have made a fortune off the economy over the last decade but now are failing because they squandered that advantage.

Do you think they would cough up some dough for you if the situation were reversed?

The more I hear, the more I am digging my feet in. No one has explained how this bill will solve a problem that the free market cannot.

I am disgusted by the propensity for the American people to look to the government to save them.

Since when is it the federal government's job to come in and save these reckless greedy executives from their negligent actions?

Any legislation bailing these companies out should seek mitigation from the corporate executives. Their private assets should be fair game. If the taxpayers are going to clean up their mess, they should be held liable to the extent they helped create it.

Sell their mansions and give them a FEMA trailer and some food stamps.

The fact that anyone would consider voting for McDeregulator after the events of the last week is mystifying to me. If the historic failures and catastrophes that have occurred these last eight years under Republican rule aren't enough to convince people that they can't govern and don't have American's best interests at heart, then we as a country are beyond hope. What more has to happen before people acknowledge that these people are complete and utter failures at everything?!! What have Bush and the Republicans touched that hasn't turned to an absolute disaster? To willingly vote for more of this economic treason under the guise of a free market "ownership society" is unimaginable given what is transpiring before our eyes.